Most of 2022 was bad for real estate investment trusts (REITs), particularly the hotel REIT subsector, as inflation, Federal Reserve rate hikes, hurricanes, airline delays and the threat of a recession provided headwinds for the group. Several hotel REITs lost as much as 40% to 50% of their value throughout the year.
But some hotel REITs have bounced back in 2023 as the hospitality industry saw an uptick in business and personal travel. Many hotel REITs announced first-quarter operating results with improved funds from operations (FFO) and revenue per available room (RevPAR).
Well-known hotel REITs include Host Hotels & Resorts Inc. HST, Ryman Hospitality Properties Inc. RHP, Apple Hospitality REIT Inc. APLE, Park Hotels & Resorts Inc. PK and Sunstone Hotel Investors Inc. SHO. Each of these REITs has a market capitalization between $2 billion and $12 billion.
But one smaller, less well-known hotel REIT with a market capitalization of $138.6 million has trounced its peers in performance with a 46% gain since the REIT market low on March 24.
Take a look at the new market leader and learn why it continues to outperform all other REITs this week.
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Ashford Hospitality Trust Inc. AHT is a Dallas-based hotel REIT that focuses on upscale, full-service and select-service hotels. Ashford Hospitality Trust is externally advised by Ashford Inc. AINC.
Ashford Hospitality got its start in 1957 as a small hotel at Los Angeles International Airport. By 1969 it had expanded to 13 hotels across the U.S. and developed the Ashford Hong Kong, which resulted in establishing the company under its present name. Ashford had its initial public offering (IPO) in 2003.
As of March 31, Ashford Hospitality had 22,316 rooms in 100 hotels across 26 states. Its top markets include Washington, D.C./Northern Virginia; Nashville, Tennessee; Atlanta; Los Angeles; and Dallas/Fort Worth. Ashford Hospitality’s brands include Hilton, Marriott, Hyatt, Courtyard, Embassy, Sheraton and others.
In early April, Ashford Hospitality pre-announced an increase in its first-quarter 2023 occupancy and a 30% increase in RevPAR over the first quarter of 2022. This boosted the share price from $2.75 to $3.40 by the end of April.
On May 1, after the closing bell, Ashford Hospitality announced its first-quarter operating results. First-quarter FFO of $0.19 was far ahead of estimates for $0.15 and was up from $0.04 in the first quarter of 2022. Revenue of $328.89 million beat the consensus estimate by over $27 million and was 33.08% higher than revenue of $247.14 million in the first quarter of 2022.
Shares then rose to an intra-day high of $4.66 on May 5. After pulling back to $3.64 over the next 10 days, Ashford Hospitality shares rose almost 9% on May 17 without any public news. The total gain of 46.18% since March 23 leads not just hotel REITs, but all other REITs as well.
Investors should also know about Ashford Hospitality’s poor longer-term performance history. If you purchased Ashford Hospitality Trust on April 1, 2019, when it was trading at $488 and held it until now, your total return would be negative 95.42%. That’s as bad as it gets.
It’s likely that Ashford Hospitality’s recent stellar price performance is the result of vastly improved top and bottom lines since the first quarter of 2022 and a feeling among investors that perhaps Ashford Hospitality’s worst days are in the rearview mirror.
Ashford Hospitality gets little analyst coverage. In mid-March, B. Riley Securities maintained a Neutral position on Ashford Hospitality but lowered its previous price target of $9 to $6.50. Deutsche Bank AG maintained a Buy rating last October with a $28 price target.
Better things are finally happening at Ashford Hospitality Trust, but investors can expect to see more volatility from this REIT, and it’s not a stock for the widows and orphans’ fund. Ashford Hospitality suspended its dividend at the end of 2019 and has yet to reinstate it because it still has approximately $3.85 billion of debt.
With a price/FFO of just 3.98, this is a very undervalued REIT. But at a little over $4 per share, this could be an inexpensive, solid performer for the remainder of 2023.
Over the past five years, private market real estate investments have outperformed the publicly traded REIT market by about 50%. Check out Benzinga’s Real Estate Offering Screener to discover the latest passive real estate investments.
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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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